An IPO of MTS Bank may take place on the Russian stock market by the end of April

By the end of April, another major IPO of MTS Bank may take place on the Russian stock market. The volume of the placement could be at least 10 billion rubles, which is comparable to last year’s placement by Sovcombank. At the same time, MTS Bank is also going to place with a significant discount to a fair valuation, which can ensure high investor demand and an increase in quotations in the first time after the placement. Assessing the issuer’s prospects, analysts note that the growth rate of its business may be limited by high competition in retail banking.

On Friday, April 12, MTS Bank officially announced its intention to conduct an IPO on the Moscow Exchange (see Kommersant on March 14). No additional data was released. “The bank never announced the parameters of the transaction and did not give cost guidelines,” MTS Bank told Kommersant. At the same time, at the end of March, the head of the bank, Ilya Filatov, in an interview with RBC, stated that the total volume of placement would be “about 15%, we do not exclude a possible increase in the future.” At the beginning of April, the bank registered an additional issue of 7.19 million shares, which it was going to place by public subscription. Currently, the bank’s capital is divided into 30.03 million shares. Existing shareholders have a preferential right to submit an application to purchase shares of the additional issue during the period from April 12 to April 23. Before the end of this period, “the placement of shares other than through the exercise of the specified pre-emptive right is not permitted,” the issuer’s material fact states. According to Kommersant’s sources in the financial market, the bank may collect applications for the IPO before the May holidays.

According to a Kommersant source familiar with the bank’s plans, the organizing banks estimated the fair value of MTS Bank at up to 115 billion rubles. (1.6 capital). SberCIB analysts estimate a fair assessment of MTS Bank’s share capital at RUB 105 billion. (Kommersant has read the report). This valuation comes from a P/E multiple of 5.6 and a P/B multiple of 1.1-1.3. “The bank itself wants to give the market a reasonable discount to allow investors to earn money and create a positive investment story,” the Kommersant source said. At the end of last year, Sovcombank was placed with a noticeable discount to a fair valuation (see “Kommersant” dated November 27, 2023), while the demand for shares exceeded supply many times over (see “Kommersant” dated December 15, 2023), and currently it shares are trading nearly 70% above the offering price.

At the same time, according to Kommersant’s interlocutors familiar with the situation at the bank, the placement parameters have changed noticeably after consultations with market participants. If initially the bank wanted to place at a valuation of 1.4 capital, and the volume of the IPO was estimated at 13–15 billion rubles, then currently the placement can take place at a valuation of 1.2 capital, and the volume is accordingly reduced to 10–12 billion rubles.

Experts whose opinions Kommersant was able to get acquainted with give a positive assessment of the bank and its growth potential. At the beginning of the year, according to MTS Bank, it had 3.8 million active retail clients. At the same time, only 2% of borrowers have a debt burden ratio (DNI) of more than 80% (with a Central Bank limit of 5%), and 16% of unsecured cash loans and 5% of credit cards fall on borrowers with a DLI of 50–80%, according to the SberCIB report. In April 2024, MTS Bank plans to raise 6 billion rubles in capital. subordinated bonds, which will support the bank’s capital adequacy and its growth plans, according to the SberCIB report.

Among the key advantages and positive aspects of MTS Bank, analysts pay attention to its serious positions in marginal unsecured lending (leader in POS lending in terms of portfolio volume with a market share of 17%, among the top 10 in unsecured lending, share in the credit card market – 2.2%, in the cash loan market – 1.8%).

At the same time, SberCIB analysts note that MTS Bank operates in the highly competitive segment of retail banking services, while the number of clients it has is “several times less than that of the leaders.” Therefore, analysts believe that increased competition and an increase in the cost of attracting a client “may limit the growth rate of MTS Bank or worsen the quality of this growth, reducing the profitability of the business.”

The strategic development of MTS Bank until 2028 involves an increase in ROE (return on equity) of up to 30%. However, in 2023, this figure for the bank was only 19%, while for Sberbank it reached 25.3%, for VTB – 22.3%, for Sovcombank – 45%. In addition, as Alfa Bank analysts note, MTS Bank currently does not have a long history of generating ROE above 20% – the average for the last five years is estimated at 9.7%, and the maximum was achieved in 2023.

Some Kommersant interlocutors in the financial market look at the bank skeptically. According to one of them, “the only reason for an IPO is to revalue the bank at a higher price on the balance sheet of MTS.” Nevertheless, there will be demand for IPOs from both retail investors and institutional investors, says Artem Outlev, an analyst at Ingosstrakh-Investments Management Company.

Olga Sherunkova, Vitaly Gaidaev, Ksenia Kulikova